Gold or Silver: What should you buy this Akshay Tritiya?

Akshay Tritiya is round the corner, which is considered to be an auspicious occasion to buy gold or other precious metals like silver for prosperity. However, the peaking prices of gold and silver in the Indian markets is likely to keep investors on the tenterhooks, if they should look at this space.

Gold, which is currently hovering around Rs 60,000 per 10 grams, was just shy of Rs 61,000 about a week ago. Gold prices have risen about 10 per cent or about Rs 5,000 per cent per 10 grams in the last 50 days as the yellow metal was trading around Rs 55,550 on February 28.

Not only gold, its peer Silver too has been on a roll recently. Even the white metal has outperformed among the two. Silver prices have soared about Rs 13,000 per kilogram (kg) since February 28 as the prices have shot up to Rs 75,869 last week from Rs 63,007 on February 28. It is currently trading below Rs 74,000 per kg mark.

However, market analysts believe that the party is not over for precious metals and they are likely to move higher in the coming years. They suggest investors to put a decent amount of their allocation in this space to reap the benefits of portfolio diversification and volatile market conditions.

Sachin Kothari, Director of Augmont said that gold and silver have generated over 12 per cent average CAGR returns in the last 20 years, so one should invest in gold and silver equally on Akshaya Tritiya.

Deteriorating global growth and a looming recession in the West, only boosts the yellow metal’s appeal during this Akshaya Tritiya, said Ravindra V Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities.

According to the market experts, gold prices in the domestic markets have risen 10 per cent, while silver prices have appreciated only 7 per cent. Gold, which is majorly a hedge against inflation is likely to hog the spotlight over Silver, which is likely to be sidelined due to muted industrial demand inflationary pressure.

Gold outperforms Silver during the initial phase of an economic downturn. Once the economy starts picking up or whenever there is rise in industrial demand, Silver starts outperforming gold prices.

Gold prices are up 15 per cent in FY 2022-23 and about 20 per cent from the last year 2022 Akshaya Tritiya. Gold prices have given phenomenal returns in the last 20 years by rising more than 10 times from Rs 5,800 per 10 grams to Rs 60,800 per10 gram with a CAGR average return of more than 12 per cent, said Kothari from Augmont

"There are only four years in the last 20 years when there have been negative returns in Gold if invested on Akshaya Tritiya, which means there are 80 per cent of getting positive returns on a year-on-year basis, which is a fairly very good chance," he added.

Almost half of the gold demand comes from the Jewellery sector, while the remaining half comes from investment demand and central bank buying. Even if jewellery demand remains subdued during times of an economic crisis, investment and central bank buying are going to be a key reason for the performance, said Rao from Kotak.

"Whereas, in the case of Silver, almost half of the demand for the metal comes from the industrial sector, which is not expected to perform well during a recession," he said. "Currently, cheaper valuations, reopening of China, improved risk sentiments post the US banking crisis are supporting the Silver prices."

Gold and Silver, which yield nothing on their own, are likely to rise during the high inflation period but have remained muted recently on the back of stronger dollar index. However, analysts remain positive on the precious metal space in terms of portfolio diversification.

Rao from Kotak believes that decline in the greenback is going to be the key trigger for gold prices in FY24. Gold is also going to be a beneficiary of the rapid pace of de-dollarization happening globally.

Kothari also expects the safe haven metal to outperform in FY24. For a recession-proof portfolio, one should allocate at least 20 per cent portfolio to Gold and Silver which can be put via SIP or lumpsum or a mixed strategy, said Kothari.

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